Here's a sobering statistic for investors to chew on: Almost 90% of the Fortune 500 companies from 1955 have gone bankrupt, merged, were acquired, or faded into obscurity and were removed from the prestigious list. Clearly, it's not easy to stay in the upper echelon of public companies.
That little factoid also offers up some proof that picking long-term winning investments isn't easy. It's probably why consistent, stable, high-yielding dividend stocks are such valuable finds for most investors. These are stocks you want to hold onto.
Stanley Black & Decker (SWK 1.69%) and Realty Income (O +0.87%) are two high-yield dividend options that are worth holding onto. Let's take a look at why you should feel safe holding them for years.
Image source: Getty Images.
1. Stanley Black & Decker: The right company for the job
Many consumers probably have a Stanley Black & Decker product or two in their household, not realizing that it's a massive $15 billion global diversified industrial company with access to markets in more than 60 countries.
It's probably not surprising that Stanley Black & Decker operates the world's largest tools and storage unit manufacturing business. What may be surprising is that it's also the world's second-largest commercial electronic security company. Currently, management is working on a global cost reduction plan of roughly $2 billion, with about half of that goal to be realized by the end of 2023. Stanley Black & Decker is an extremely well-balanced global company, with diversified sales, a continuous focus on improving operations, and global support for a long list of powerful brands.
NYSE: SWK
Key Data Points
All those operations generate plenty of profits, creating enough free cash flow to support an ongoing dividend. And ongoing may be an understatement. The company holds the record for the longest consecutive annual and quarterly dividend payments among industrial companies on the New York Stock Exchange at a staggering 146 years.
Stanley Black & Decker's board of directors approved a $0.01 per-share increase to its quarterly dividend in July 2022 that marked its 55th consecutive annual dividend increase -- another pretty impressive streak that qualifies it for Dividend King status. The current payout provides a 3.7% dividend yield.
The company's commitment to its dividend is a point of pride for management, and one it plans to continue. Stanley Black & Decker President and CEO Donald Allan, Jr. explained, "A strong and growing dividend is a key element of our shareholder value proposition and is consistent with our capital deployment philosophy, which has delivered approximately half of our excess capital to shareholders over the long term." One reason investors can feel safe investing in Stanley Black & Decker for years is its track record of focusing and supporting its portfolio of brands and continuously optimizing its business model while reducing costs.
One reason investors might feel concerned about the stock is its recent price performance. The stock has shed a ton of value this year -- roughly 55%. While it is concerning, it will likely turn out to be a short-term speed bump more than a new trend. Part of the drop can be attributed to broader market turmoil and fears of a recession, which can hit Stanley Black & Decker as much as any company that relies on consumers for at least part of its revenue. Investors didn't like the lowered revenue and earnings guidance or the disclosure of increased production costs in recent earnings reports. The company also took a hit from its closure of business in Russia and a late start to the outdoor season related to weather.
Interim CFO Corbin Walburger expects earnings to bounce back by the end of 2023, and as the company has already proven it can maintain a dividend over many decades of economic swings, this downturn only provides investors a discount to start a long-term position in a historically stable dividend stock.
2. Realty Income: Is a REIT right for you?
While Realty Income tends to operate under the radar of most consumers, there's a good chance those consumers have done business in a property it leases out. Realty Income is a real estate investment trust (REIT) that specializes in triple net lease properties. These are properties where the leasee covers the taxes, insurance, and maintenance costs and the REIT just collects a base rent.
Realty Income's stability as a company comes from the diverse group of companies it works with, including convenience stores, dollar stores, and pharmacies. Realty Income management reports that roughly 94% of its total rent is resilient to economic downturns and e-commerce pressures, and roughly 43% of total rent is from investment-grade clients -- which essentially means almost half of its clients have very strong credit ratings.
NYSE: O
Key Data Points
Realty Income uses cash flow generated by over 11,400 real estate properties -- which are owned under long-term agreements that include annual rent escalations -- to pay out monthly dividends. As a REIT, it's required to distribute 90% of taxable income to shareholders to maintain its special tax status, and many REITs pay out more than 90%.
Just last week Realty Income announced another increase to the company's monthly cash dividend which now sits at $0.248 per share (or an annualized dividend amount of $2.976 per share). That dividend yields a robust 4.76%. The recent dividend hike is the 117th increase Realty Income has made in the dividend since the REIT went public in 1994.
Realty Income has been increasing its dividend annually (and sometimes more than once a year) for at least 28 years, qualifying it as a Dividend Aristocrat. It's a top 10 global REIT (as measured by market cap), and boasts a 15.1% average annual total return (compounded) since 1994. Its dividend's annual growth rate over that time is 4.4%.
While the company has fared better than the broader S&P 500 over the past year and appears to trade at a premium valuation, the truth is that it should and that there's more context investors should be aware of. As REITs are a little different than traditional dividend stocks, you should look at the company's cash profits, which are labeled funds from operations (FFO), rather than a traditional price-to-earnings ratio. To put it bluntly, business is good, just glance at the graph below to see its rising FFO and dividends paid.
O Funds from Operations (TTM) data by YCharts
When you look at the company trading at just under 17 times its FFO-per-share, and consider its improving business, its 4.76% dividend yield should be an attractive option for income investors.
Expect profitable returns from these two for years to come
Stanley Black & Decker and Realty Income may operate in completely different realms, but both have an impressive, consistent dividend payout history. Both offer investors high-yield options and have proven to be stable businesses, and that's precisely why investors can hold these for years to come.
